Fiat and Chrysler Announce Strategic Alliance

This Italian-American mashup could bear some interesting fruit.

Fiat S.p.A. and Chrysler LLC (backed by its majority stakeholder Cerberus Capital Management) today announced an alliance that will see the two automakers share vehicle platforms, distribution channels, and technology. Fiat will take a 35-percent stake in Chrysler, although no money will change hands, as Chrysler gives up a chunk of itself in return for viable future product development. (Chrysler’s been broke for long enough that virtually all meaningful product development has been halted for some time.) The current agreement is nonbinding but should become a finalized partnership by April, according to Chrysler.

Fiat Group includes the bread-and-butter brands of Fiat, Lancia, and Alfa Romeo, with luxury and performance marques Maserati and Ferrari perched at the top of the empire. We would expect most of any platform sharing to come courtesy of the lesser three Italian companies, although a rundown on the alliance by Chrysler chairman and CEO Bob Nardelli states that his company would have access to all but Ferrari’s bits and pieces. Would this open the door to a second coming of the legendary Chrysler TC by Maserati? Let’s hope not.

Chrysler needs all the help it can get to once again become viable—and prove that it can stay that way—especially considering that the U.S. government and the American populace expect to be repaid for their recent $4 billion loan to the troubled automaker. Indeed, Chrysler will likely need additional loans to continue its transformation. To that end, the Fiat/Chrysler partnership and its potential for leveraging global markets—thus strengthening both companies—could help convince lawmakers to approve further assistance.

Did we see this specific partnership coming? In a word, no. Chrysler had been in talks with GM several months back, but those fell apart when both companies began to experience serious financial hardship. A strengthened Chrysler/Nissan/Renault alliance was also rumored. But should we have expected Fiat to make such a move? In an upcoming issue of Car and Driver, we quote Fiat CEO Sergio Marchionne as saying, “Independence in this business is no longer sustainable.” His prediction that only six global carmakers will still exist in two years is pretty telling. This new alliance is apparently his attempt at merging rather than dying.

What Does Chrysler Get?

Fiat will share with Chrysler its platforms and powertrain technology, including engines, transmissions, and fuel-saving tech. Today’s announcement specifically mentions city and compact vehicles, products Chrysler will need should American consumers actually decide to buy the small, fuel-efficient cars U.S. lawmakers claim they want. Chrysler will also get better distribution of its products, certainly in Europe, but also in places such as India—Fiat has a partnership with Tata Motors—and Brazil. Fiat also has a deal with Chery, the Chinese automaker with which Chrysler had been trying to partner. Both Chrysler and Fiat will also be able to better leverage their global supplier ties and therefore see cost savings in larger volume.

What’s in it for Fiat?

For Fiat, the reward is simple: distribution channels. Currently, Fiat only sells Maserati and Ferrari in the U.S., although Alfa’s gorgeous 8C has been sold here in extremely limited numbers, as well. If Fiat wants to become a truly global entity, a foothold in North America would be most helpful. Alfa Romeo has been promising a proper return to the U.S. market for some time, and Chrysler’s distribution network could ease that brand’s return to our shores—perhaps even saving some Chrysler dealers from closing altogether—and could also serve as a point of sale for potential Fiat and Lancia imports, too.

Fiat will also likely be able to use excess global production capacity to assemble Chrysler-badged variants of its products. With worldwide auto sales slowing, that would help Fiat to continue manufacturing at pre-slowdown levels; Chrysler could potentially build Fiats in its plants, as well.

A wrench in the works: Chrysler is still in a partnership with Nissan. One product of that hook-up is expected to be a Versa-based small car, possibly based on the Dodge Hornet concept. (That car was also rumored to have sprung from the potential Chrysler/Chery partnership.) We wonder how this new Italian-American deal might affect those already in place with Nissan, which include rebadging the new-for-2009 Dodge Ram as the replacement for the Titan.

It’s All About Synergies—and Other Buzzwords

Despite Fiat being on the financial ropes itself only a few years ago, Italy’s last remaining large car company has come fighting back like Rocky Balboa thanks in part to a $2-billion alimony payment from its annulled marriage with General Motors. Chrysler could do a lot worse when it comes to picking a dance partner for 21st century survival. Speculating further, here’s how a few Fiat products could make an impact. A caveat: most of Fiat’s vehicles weren’t designed with U.S. crash and emissions standards in mind (the 500 being an exception), so it’s possible that we’ll have to wait at least until the next generation of each of these cars arrives before they could be sold here.

Fiat Grande Punto: It wouldn’t be much of an exaggeration to say that the Grande Punto is the car that saved Fiat. At the time of its introduction back in 2005, the Italian auto giant was staggering after years of neglecting the small-car market, a segment which had made it such a powerhouse from the 1950s through the ‘70s. Handsome, well-built, and economical, the Grande Punto surprised the automotive world by being, well, so unlike the rust-prone wheezeboxes Fiat had peddled to European consumers for the previous two decades. Maybe it didn’t single-handedly save Fiat, but had the Grande Punto flopped, it could have destroyed the company.

Sized to compete with cars like the new Ford Focus and Honda Civic, this small Fiat would look nice rebadged as a Chrysler. Its range of economical gasoline-fired engines (from a feeble but fuel-sipping 64-hp, 1.2-liter four-banger to the tire-smoking, 178-hp four found in the sporty Abarth SS model) could earn Chrysler green-car cred, props from the sport-compact crowd, and a valuable slice of the small-car market.

Fiat 500: Following the lead of other retro-themed small cars like the Volkswagen Beetle and BMW’s Mini, Fiat mined its rich small-car history to create this thoroughly modern update of an automotive icon. Stylistic inspiration came from the original 500 that was produced from 1957 to 1975. That 500 managed to be cool, cheap, and—when tuned for performance—a giant-killer on road and racetrack alike.

Today, the new Fiat 500 makes an urban-hip car like the Mini Cooper suddenly look as conformist as a beige Corolla. Under the 500’s chic-looking shape is the front-drive platform of the current Fiat Panda and the new Ford Ka. A wide range of water-cooled engines are found under the 500’s stubby nose, including a 69-hp, 1.2-liter gasoline engine and a frugal, 75-hp, 1.3-liter turbo-diesel. If the 500 were to come to the U.S., bet on something a bit more powerful stuffed under the hood, like the optional 100-hp, 1.4-liter 16-valve gas-powered four-cylinder. A 158-hp four-cylinder is offered in the sporty 500 Abarth model.

In terms of sales, the 500 has been a home run for Fiat in Europe. Not only has the car sold remarkably well, customers are loading the car with pricey options, which allows Fiat to score maximum profit out of a small runabout. The 500 could spearhead Fiat’s reentry into the U.S. market and/or Chrysler could snag the rights to build an equally quirky, sexy small car based on the little Italian’s mechanicals. Chrysler owns the rights to the Gremlin name, right?

Fiat Bravo: This is probably as far as the Chrysler/Fiat link dare go up the automotive food chain, at least in the U.S. market. The C-segment is filled with heady competition, not least of which is the bestselling car in Europe, the Volkswagen Golf (currently Rabbit in North America). Fiat has routinely sputtered and stalled when it came to building larger cars in the past.

Yet the new Bravo is proof that the Italian manufacturer is ready to take on mainstream rivals in such a volume area. Stylish and refined, the Bravo is filled with high-tech features, and a high-end Chrysler hatchback or sedan based on it might not be so far-fetched.